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4 Ways to Get the Best Deal on a New Car

What to do before you start shopping, and what you should never tell a car salesman

If you're planning on buying a new car anytime soon, it can really pay to be a smart shopper. There are some things you need to do before you even arrive at a dealership, such as knowing how much you should have to pay in interest. Then when you get to the dealership, there are certain things you should never tell the salesman, like how much you can afford to pay per month.

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Here are three things to do that can get you the best possible deal on the car you want.

Shop around for a loan firstBefore you even go to a dealership to shop for a car, you should know what your budget is and how much you should expect to pay. Check your credit score and find out what the average interest rates are. Myfico.com will do this for about $20, and it is the only place you can buy your real FICO score, which most lenders use.

It may be a good idea to get pre-approved for a loan from a bank. This will let you know how much you have to spend, and what your interest rate will be. Local banks and credit unions tend to offer some of the lowest rates around, so it's worth checking them out.

I know that some auto manufacturers are offering financing incentives, like 0% interest for 60 months, and they may indeed be the best deal, but it helps to have a starting point to compare the financing offers from the dealership.

Financing and price are two different thingsOften, one of the first questions the salesman in the dealership will ask is "how much can you afford per month." Under no circumstances should you answer this question.

One of the reasons I say to get a pre-approval is because financing should be a completely separate process from negotiating on the price. By telling a salesman "I can afford $400 per month", you're giving him permission to raise the price of the car and increase your interest rate to get it right to that point.

Always negotiate the price on the car first, and then begin to discuss financing. If you have a car to trade in, that's another completely separate transaction. Many dealers will offer you a high trade-in value, if and only if you pay full retain price for a car.

Know what the dealer paid, and consider a "leftover"This is called the "invoice" price, or the amount the manufacturer charges the dealership for the car. This is relatively easy information to find, and a good place to start is TrueCar.com, which can tell you exactly what the factory invoice is on pretty much any new car and its options. And bear in mind, the amount the dealer actually paid for the car is usually considerably less than the invoice price.

A good strategy to get a new car for even less than the invoice price is to look for a "leftover" or a brand new car still on the lot from the previous model year. It's not uncommon for a dealer to cut its losses and accept far below invoice for a year-old car on its lot. After all, a car is a depreciating asset and loses value every day it remains on the lot.

Be ready to walk awayIf a salesman is being aggressive or stubbornly insisting the price they are giving is the absolute best they can do, don't hesitate to politely thank them for their time and walk out the door. Let them know what you're willing to pay, leave your phone number, and tell them to call you if anything changes.

More often than not, you'll get a call a few days later. And if not, wait until you can get the deal you want. A car shouldn't be an impulse buy, as it will be with you for years to come. It's worth holding out for the car and the deal you want and deserve.

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Matt brought his love of teaching and investing to the Fool in 2012 in order to help people invest better. Matt specializes in writing about the best opportunities in bank stocks, REITs, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!
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